G.R. No.

174433               February 24, 2014 After more than a year after the Certificate of Sale had been issued to PNB, the
Spouses Manalo instituted this action for the nullification of the foreclosure
proceedings and damages. They alleged that they had obtained a loan for
PHILIPPINE NATIONAL BANK, Petitioner, 
₱1,000,000.00 from a certain Benito Tan upon arrangements made by Antoninus
vs.
Yuvienco, then the General Manager of PNB’s Bangkal Branch where they had
SPOUSES ENRIQUE MANALO & ROSALINDA JACINTO, ARNOLD J. MANALO,
transacted; that they had been made to understand and had been assured that the
ARNEL J. MANALO, and ARMA J. MANALO, Respondents.
₱1,000,000.00 would be used to update their account, and that their loan would be
restructured and converted into a long-term loan;5 that they had been surprised to
DECISION learn, therefore, that had been declared in default of their obligations, and that the
mortgage on their property had been foreclosed and their property had been sold; and
that PNB did not comply with Section 3 of Act No. 3135, as amended.6
BERSAMIN, J.:

PNB and Antoninus Yuvienco countered that the ₱1,000,000.00 loan obtained by the
Although banks are free to determine the rate of interest they could impose on their Spouses Manalo from Benito Tan had been credited to their account; that they did not
borrowers, they can do so only reasonably, not arbitrarily. They may not take make any assurances on the restructuring and conversion of the Spouses Manalo’s
advantage of the ordinary borrowers' lack of familiarity with banking procedures and loan into a long-term one;7 that PNB’s right to foreclose the mortgage had been clear
jargon. Hence, any stipulation on interest unilaterally imposed and increased by them especially because the Spouses Manalo had not assailed the validity of the loans and
shall be struck down as violative of the principle of mutuality of contracts. of the mortgage; and that the Spouses Manalo did not allege having fully paid their
indebtedness.8
Antecedents
Ruling ofthe RTC
Respondent Spouses Enrique Manalo and Rosalinda Jacinto (Spouses Manalo)
applied for an All-Purpose Credit Facility in the amount of ₱1,000,000.00 with After trial, the RTC rendered its decision in favor of PNB, holding thusly:
Philippine National Bank (PNB) to finance the construction of their house. After PNB
granted their application, they executed a Real Estate Mortgage on November 3, 1993
in favor of PNB over their property covered by Transfer Certificate of Title No. S- In resolving this present case, one of the most significant matters the court has noted
23191 as security for the loan.1 The credit facility was renewed and increased several is that while during the pre-trial held on 8 September 2003, plaintiff-spouses Manalo
times over the years. On September 20, 1996, the credit facility was again renewed with the assistance counsel had agreed to stipulate that defendants had the right to
for ₱7,000,000.00. As a consequence, the parties executed a Supplement to and foreclose upon the subject properties and that the plaintiffs[‘] main thrust was to prove
Amendment of Existing Real Estate Mortgage whereby the property covered by TCT that the foreclosure proceedings were invalid, in the course of the presentation of their
No. 171859 was added as security for the loan. evidence, they modified their position and claimed [that] the loan document executed
were contracts of adhesion which were null and void because they were prepared
entirely under the defendant bank’s supervision. They also questioned the interest
The additional security was registered in the names of respondents Arnold, Arnel, rates and penalty charges imposed arguing that these were iniquitous,
Anthony, and Arma, all surnamed Manalo, who were their children.2 unconscionable and therefore likewise void.

It was agreed upon that the Spouses Manalo would make monthly payments on the Not having raised the foregoing matters as issues during the pre-trial, plaintiff-spouses
interest. However, PNB claimed that their last recorded payment was made on are presumably estopped from allowing these matters to serve as part of their
December, 1997. Thus, PNB sent a demand letter to them on their overdue account evidence, more so because at the pre-trial they expressly recognized the defendant
and required them to settle the account. PNB sent another demand letter because bank’s right to foreclose upon the subject property (See Order, pp. 193-195).
they failed to heed the first demand.3

However, considering that the defendant bank did not interpose any objection to these
After the Spouses Manalo still failed to settle their unpaid account despite the two matters being made part of plaintiff’s evidence so much so that their memorandum
demand letters, PNB foreclose the mortgage. During the foreclosure sale, PNB was contained discussions rebutting plaintiff spouses arguments on these issues, the court
the highest bidder for ₱15,127,000.00 of the mortgaged properties of the Spouses must necessarily include these matters in the resolution of the present case.9
Manalo. The sheriff issued to PNB the Certificate of Sale dated November 13, 2000.4

The RTC held, however, that the Spouses Manalo’s "contract of adhesion" argument
was unfounded because they had still accepted the terms and conditions of their credit
agreement with PNB and had exerted efforts to pay their obligation;10 that the Spouses increased interest rate was null and void for being violative of the principle of mutuality
Manalo were now estopped from questioning the interest rates unilaterally imposed by of contracts enshrined in Article 1308 of the Civil Code. Reinforcing its "contract of
PNB because they had paid at those rates for three years without protest;11 and that adhesion" conclusion, it added that the Spouses Manalo’s being in dire need of money
their allegation about PNB violating the notice and publication requirements during the rendered them to be not on an equal footing with PNB. Consequently, the CA, relying
foreclosure proceedings was untenable because personal notice to the mortgagee on Eastern Shipping Lines, v. Court of Appeals,19 fixed the interest rate to be paid by
was not required under Act No. 3135.12 the Spouses Manalo at 12% per annum, computed from their default.

The Spouses Manalo appealed to the CA by assigning a singular error, as follows: The CA deemed to be untenable the Spouses Manalo’s allegation that PNB had failed
to comply with the requirements for notice and posting under Section 3 of Act 3135.
The CA stated that Sheriff Norberto Magsajo’s testimony was sufficient proof of his
THE COURT A QUO SERIOUSLY ERRED IN DISMISSING PLAINTIFF-
posting of the required Notice of Sheriff’s Sale in three public places; that the
APPELLANTS’ COMPLAINT FOR BEING (sic) LACK OF MERIT
notarized Affidavit of Publication presented by Sheriff Magsajo was prima facie proof
NOTWITHSTANDING THE FACT THAT IT WAS CLEARLY SHOWN THAT THE
of the publication of the notice; and that the Affidavit of Publication enjoyed the
FORECLOSURE PROCEEDINGS WAS INVALID AND ILLEGAL.13
presumption of regularity, such that the Spouses Manalo’s bare allegation of non-
publication without other proof did not overcome the presumption.
The Spouses Manalo reiterated their arguments, insisting that: (1) the credit
agreements they entered into with PNB were contracts of adhesion;14 (2) no interest
On August 29, 2006, the CA denied the Spouses Manalo’s Motion for Reconsideration
was due from them because their credit agreements with PNB did not specify the
and PNB’s Partial Motion for Reconsideration.20
interest rate, and PNB could not unilaterally increase the interest rate without first
informing them;15 and (3) PNB did not comply with the notice and publication
requirements under Section 3 of Act 3135.16 On the other hand, PNB and Yuvienco did Issues
not file their briefs despite notice.17
In its Memorandum,21 PNB raises the following issues:
Ruling ofthe CA
I
In its decision promulgated on March 28, 2006,18 the CA affirmed the decision of the
RTC insofar as it upheld the validity of the foreclosure proceedings initiated by PNB,
WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN NULLIFYING
but modified the Spouses Manalo’s liability for interest. It directed the RTC to see to
THE INTEREST RATES IMPOSED ON RESPONDENT SPOUSES’ LOAN AND IN
the recomputation of their indebtedness, and ordered that should the recomputed
FIXING THE SAME AT TWELVE PERCENT (12%) FROM DEFAULT, DESPITE THE
amount be less than the winning bid in the foreclosure sale, the difference should be
FACT THAT (i) THE SAME WAS RAISED BY THE RESPONDENTS ONLY FOR THE
immediately returned to the Spouses Manalo.
FIRST TIME ON APPEAL (ii) IT WAS NEVER PART OF THEIR COMPLAINT (iii)
WAS EXLUDED AS AN ISSUE DURING PRE-TRIAL, AND WORSE, (iv) THERE
The CA found it necessary to pass upon the issues of PNB’s failure to specify the WAS NO FORMALLY OFFERED PERTAINING TO THE SAME DURING TRIAL.
applicable interest and the lack of mutuality in the execution of the credit agreements
considering the earlier cited observation made by the trial court in its decision.
II
Applying Article 1956 of the Civil Code, the CA held that PNB’s failure to indicate the
rate of interest in the credit agreements would not excuse the Spouses Manalo from
their contractual obligation to pay interest to PNB because of the express agreement WHETHER OR NOT THE COURT OF APPEALS CORRECTLY RULED THAT
to pay interest in the credit agreements. Nevertheless, the CA ruled that PNB’s THERE WAS NO MUTUALITY OF CONSENT IN THE IMPOSITION OF INTEREST
inadvertence to specify the interest rate should be construed against it because the RATES ON THE RESPONDENT SPOUSES’ LOAN DESPITE THE EXISTENCE OF
credit agreements were clearly contracts of adhesion due to their having been FACTS AND CIRCUMSTANCES CLEARLY SHOWING RESPONDENTS’ ASSENT
prepared solely by PNB. TO THE RATES OF INTEREST SO IMPOSED BY PNB ON THE LOAN.

The CA further held that PNB could not unilaterally increase the rate of interest Anent the first issue, PNB argues that by passing upon the issue of the validity of the
considering that the credit agreements specifically provided that prior notice was interest rates, and in nullifying the rates imposed on the Spouses Manalo, the CA
required before an increase in interest rate could be effected. It found that PNB did not decided the case in a manner not in accord with Section 15, Rule 44 of the Rules of
adduce proof showing that the Spouses Manalo had been notified before the Court, which states that only questions of law or fact raised in the trial court could be
increased interest rates were imposed; and that PNB’s unilateral imposition of the assigned as errors on appeal; that to allow the Spouses Manalo to raise an issue for
the first time on appeal would "offend the basic rules of fair play, justice and due 22. The truth of the matter is that defendant bank imposed rate of interest
process;"22 that the resolution of the CA was limited to the issues agreed upon by the which ranges from 19% to as high as 28% and which changes from time to
parties during pre-trial;23 that the CA erred in passing upon the validity of the interest time;
rates inasmuch as the Spouses Manalo did not present evidence thereon; and that the
Judicial Affidavit of Enrique Manalo, on which the CA relied for its finding, was not
23. The irregularity, much less the invalidity of the imposition of iniquitous
offered to prove the invalidity of the interest rates and was, therefore, inadmissible for
rates of interest was aggravated by the fact that we were not informed,
that purpose.24
notified, nor the same had our prior consent and acquiescence therefor. x x
x25
As to the substantive issues, PNB claims that the Spouses Manalo’s continuous
payment of interest without protest indicated their assent to the interest rates imposed,
PNB cross-examined Enrique Manalo upon his Judicial Affidavit. There is no showing
as well as to the subsequent increases of the rates; and that the CA erred in declaring
that PNB raised any objection in the course of the cross examination.26 Consequently,
that the interest rates and subsequent increases were invalid for lack of mutuality
the RTC rightly passed upon such issues in deciding the case, and its having done so
between the contracting parties.
was in total accord with Section 5, Rule 10 of the Rules of Court, which states:

Ruling
Section 5. Amendment to conform to or authorize presentation of evidence. – When
issues not raised by the pleadings are tried with the express or implied consent of the
The appeal lacks merit. parties, they shall be treated in all respects as if they had been raised in the pleadings.
Such amendment of the pleadings as may be necessary to cause them to conform to
the evidence and to raise these issues may be made upon motion of any party at any
1.
time, even after judgment; but failure to amend does not affect the result of the trial of
Procedural Issue
these issues. If evidence is objected to at the trial on the ground that it is not within the
issues made by the pleadings, the court may allow the pleadings to be amended and
Contrary to PNB’s argument, the validity of the interest rates and of the increases, and shall do so with liberality if the presentation of the merits of the action and the ends of
on the lack of mutuality between the parties were not raised by the Spouses Manalo’s substantial justice will be subserved thereby. The court may grant a continuance to
for the first time on appeal. Rather, the issues were impliedly raised during the trial enable the amendment to be made.
itself, and PNB’s lack of vigilance in voicing out a timely objection made that possible.
In Bernardo Sr. v. Court of Appeals,27 we held that:
It appears that Enrique Manalo’s Judicial Affidavit introduced the issues of the validity
of the interest rates and the increases, and the lack of mutuality between the parties in
It is settled that even if the complaint be defective, but the parties go to trial thereon,
the following manner, to wit:
and the plaintiff, without objection, introduces sufficient evidence to constitute the
particular cause of action which it intended to allege in the original complaint, and the
5. True to his words, defendant Yuvienco, after several days, sent us a defendant voluntarily produces witnesses to meet the cause of action thus
document through a personnel of defendant PNB, Bangkal, Makati City established, an issue is joined as fully and as effectively as if it had been previously
Branch, who required me and my wife to affix our signature on the said joined by the most perfect pleadings. Likewise, when issues not raised by the
document; pleadings are tried by express or implied consent of the parties, they shall be treated
in all respects as if they had been raised in the pleadings.
6. When the document was handed over me, I was able to know that it was
a Promissory Note which was in ready made form and prepared solely by The RTC did not need to direct the amendment of the complaint by the Spouses
the defendant PNB; Manalo. Section 5, Rule 10 of the Rules of Court specifically declares that the "failure
to amend does not affect the result of the trial of these issues." According to Talisay-
Silay Milling Co., Inc. v. Asociacion de Agricultores de Talisay-Silay, Inc.:28
xxxx

The failure of a party to amend a pleading to conform to the evidence adduced during
21. As above-noted, the rates of interest imposed by the defendant bank trial does not preclude an adjudication by the court on the basis of such evidence
were never the subject of any stipulation between us mortgagors and the which may embody new issues not raised in the pleadings, or serve as a basis for a
defendant PNB as mortgagee; higher award of damages. Although the pleading may not have been amended to
conform to the evidence submitted during trial, judgment may nonetheless be
rendered, not simply on the basis of the issues alleged but also on the basis of issues obviously because the RTC had decided in its favor. In fact, PNB did not even submit
discussed and the assertions of fact proved in the course of trial.1âwphi1 The court its appellee’s brief despite notice from the CA.
may treat the pleading as if it had been amended to conform to the evidence, although
it had not been actually so amended. Former Chief Justice Moran put the matter in
2.
this way:
Substantive Issue

When evidence is presented by one party, with the expressed or implied consent of
The credit agreement executed succinctly stipulated that the loan would be subjected
the adverse party, as to issues not alleged in the pleadings, judgment may be
to interest at a rate "determined by the Bank to be its prime rate plus applicable
rendered validly as regards those issues, which shall be considered as if they have
spread, prevailing at the current month."31 This stipulation was carried over to or
been raised in the pleadings. There is implied, consent to the evidence thus presented
adopted by the subsequent renewals of the credit agreement. PNB thereby arrogated
when the adverse party fails to object thereto." (Emphasis supplied)
unto itself the sole prerogative to determine and increase the interest rates imposed
on the Spouses Manalo. Such a unilateral determination of the interest rates
Clearly, a court may rule and render judgment on the basis of the evidence before it contravened the principle of mutuality of contracts embodied in Article 1308 of the Civil
even though the relevant pleading had not been previously amended, so long as no Code.32
surprise or prejudice is thereby caused to the adverse party. Put a little differently, so
long as the basic requirements of fair play had been met, as where litigants were
The Court has declared that a contract where there is no mutuality between the
given full opportunity to support their respective contentions and to object to or refute
parties partakes of the nature of a contract of adhesion,33 and any obscurity will be
each other's evidence, the court may validly treat the pleadings as if they had been
construed against the party who prepared the contract, the latter being presumed the
amended to conform to the evidence and proceed to adjudicate on the basis of all the
stronger party to the agreement, and who caused the obscurity.34 PNB should then
evidence before it.
suffer the consequences of its failure to specifically indicate the rates of interest in the
credit agreement. We spoke clearly on this in Philippine Savings Bank v. Castillo,35 to
There is also no merit in PNB’s contention that the CA should not have considered wit:
and ruled on the issue of the validity of the interest rates because the Judicial Affidavit
of Enrique Manalo had not been offered to prove the same but only "for the purpose of
The unilateral determination and imposition of the increased rates is violative of the
identifying his affidavit."29 As such, the affidavit was inadmissible to prove the nullity of
principle of mutuality of contracts under Article 1308 of the Civil Code, which provides
the interest rates.
that ‘[t]he contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them.’ A perusal of the Promissory Note will readily show
We do not agree. that the increase or decrease of interest rates hinges solely on the discretion of
petitioner. It does not require the conformity of the maker before a new interest rate
could be enforced. Any contract which appears to be heavily weighed in favor of one
Section 5, Rule 10 of the Rules of Court is applicable in two situations.1âwphi1 The
of the parties so as to lead to an unconscionable result, thus partaking of the nature of
first is when evidence is introduced on an issue not alleged in the pleadings and no
a contract of adhesion, is void. Any stipulation regarding the validity or compliance of
objection is interposed by the adverse party. The second is when evidence is offered
the contract left solely to the will of one of the parties is likewise invalid. (Emphasis
on an issue not alleged in the pleadings but an objection is raised against the
supplied)
offer.30 This case comes under the first situation. Enrique Manalo’s Judicial Affidavit
would introduce the very issues that PNB is now assailing. The question of whether
the evidence on such issues was admissible to prove the nullity of the interest rates is PNB could not also justify the increases it had effected on the interest rates by citing
an entirely different matter. The RTC accorded credence to PNB’s evidence showing the fact that the Spouses Manalo had paid the interests without protest, and had
that the Spouses Manalo had been paying the interest imposed upon them without renewed the loan several times. We rule that the CA, citing Philippine National Bank v.
protest. On the other hand, the CA’s nullification of the interest rates was based on the Court of Appeals,36 rightly concluded that "a borrower is not estopped from assailing
credit agreements that the Spouses Manalo and PNB had themselves submitted. the unilateral increase in the interest made by the lender since no one who receives a
proposal to change a contract, to which he is a party, is obliged to answer the same
and said party’s silence cannot be construed as an acceptance thereof."37
Based on the foregoing, the validity of the interest rates and their increases, and the
lack of mutuality between the parties were issues validly raised in the RTC, giving the
Spouses Manalo every right to raise them in their appeal to the CA. PNB’s contention Lastly, the CA observed, and properly so, that the credit agreements had explicitly
was based on its wrong appreciation of what transpired during the trial. It is also provided that prior notice would be necessary before PNB could increase the interest
interesting to note that PNB did not itself assail the RTC’s ruling on the issues rates. In failing to notify the Spouses Manalo before imposing the increased rates of
interest, therefore, PNB violated the stipulations of the very contract that it had
prepared. Hence, the varying interest rates imposed by PNB have to be vacated and 2. The amount to be refunded and its accrued interest shall earn interest of
declared null and void, and in their place an interest rate of 12% per annum computed 6% per annum until full refund.
from their default is fixed pursuant to the ruling in Eastern Shipping Lines, Inc. v. Court
of Appeals.38
WHEREFORE, the Court AFFIRMS the decision promulgated by the Court of Appeals
on March 28, 2006 in CA-G.R. CV No. 84396, subject to the MODIFICATION that any
The CA’s directive to PNB (a) to recompute the Spouses Manalo’s indebtedness amount to be refunded to the respondents shall bear interest of 12% per annum
under the oversight of the RTC; and (b) to refund to them any excess of the winning computed from March 28, 2006 until June 30, 2013, and 6% per annum computed
bid submitted during the foreclosure sale over their recomputed indebtedness was from July 1, 2013 until finality hereof; that the amount to be refunded and its accrued
warranted and equitable. Equally warranted and equitable was to make the amount to interest shall earn interest at 6o/o per annum until full refund; and DIRECTS the
be refunded, if any, bear legal interest, to be reckoned from the promulgation of the petitioner to pay the costs of suit.
CA’s decision on March 28, 2006.39Indeed, the Court said in Eastern Shipping Lines,
Inc. v. Court of Appeals40 that interest should be computed from the time of the judicial
SO ORDERED.
or extrajudicial demand. However, this case presents a peculiar situation, the
peculiarity being that the Spouses Manalo did not demand interest either judicially or
extrajudicially. In the RTC, they specifically sought as the main reliefs the nullification LUCAS P. BERSAMIN
of the foreclosure proceedings brought by PNB, accounting of the payments they had Associate Justice
made to PNB, and the conversion of their loan into a long term one.41 In its judgment,
the RTC even upheld the validity of the interest rates imposed by PNB.42 In their
appellant’s brief, the Spouses Manalo again sought the nullification of the foreclosure
proceedings as the main relief.43 It is evident, therefore, that the Spouses Manalo
made no judicial or extrajudicial demand from which to reckon the interest on any G.R. No. 136426. August 6, 1999]
amount to be refunded to them. Such demand could only be reckoned from the
promulgation of the CA’s decision because it was there that the right to the refund was
first judicially recognized. Nevertheless, pursuant to Eastern Shipping Lines, Inc. v.
Court of Appeals,44 the amount to be refunded and the interest thereon should earn
interest to be computed from the finality of the judgment until the full refund has been E. B. VILLAROSA & PARTNER CO., LTD., petitioner, vs. HON. HERMINIO I.
made. BENITO, in his capacity as Presiding Judge, RTC, Branch 132, Makati City
and IMPERIAL DEVELOPMENT CORPORATION, respondent.
Anent the correct rates of interest to be applied on the amount to be refunded by PNB,
the Court, in Nacar v. Gallery Frames45 and S.C. Megaworld Construction v. DECISION
Parada,46 already applied Monetary Board Circular No. 799 by reducing the interest
rates allowed in judgments from 12% per annum to 6% per annum.47 According to GONZAGA-REYES, J.:
Nacar v. Gallery Frames, MB Circular No. 799 is applied prospectively, and judgments
that became final and executory prior to its effectivity on July 1, 2013 are not to be
Before this Court is a petition for certiorari and prohibition with prayer for the issuance
disturbed but continue to be implemented applying the old legal rate of 12% per
of a temporary restraining order and/or writ of preliminary injunction seeking to annul and set
annum. Hence, the old legal rate of 12% per annum applied to judgments becoming
aside the Orders dated August 5, 1998 and November 20, 1998 of the public respondent Judge
final and executory prior to July 1, 2013, but the new rate of 6% per annum applies to
Herminio I. Benito of the Regional Trial Court of Makati City, Branch 132 and praying that the
judgments becoming final and executory after said dater.
public respondent court be ordered to desist from further proceeding with Civil Case No. 98-
824.
Conformably with Nacar v. Gallery Frames and S.C. Megaworld Construction v.
Parada, therefore, the proper interest rates to be imposed in the present case are as Petitioner E.B. Villarosa & Partner Co., Ltd. is a limited partnership with principal
follows: office address at 102 Juan Luna St., Davao City and with branch offices at 2492 Bay View
Drive, Tambo, Paraaque, Metro Manila and Kolambog, Lapasan, Cagayan de Oro
City. Petitioner and private respondent executed a Deed of Sale with Development Agreement
1. Any amount to be refunded to the Spouses Manalo shall bear interest of wherein the former agreed to develop certain parcels of land located at Barrio Carmen,
12% per annum computed from March 28, 2006, the date of the Cagayan de Oro belonging to the latter into a housing subdivision for the construction of low
promulgation of the CA decision, until June 30, 2013; and 6% per annum cost housing units. They further agreed that in case of litigation regarding any dispute arising
computed from July 1, 2013 until finality of this decision; and therefrom, the venue shall be in the proper courts of Makati.
 On April 3, 1998, private respondent, as plaintiff, filed a Complaint for Breach of filed; and that it was one (1) month after receipt of the summons and the complaint that
Contract and Damages against petitioner, as defendant, before the Regional Trial Court of defendant chose to file a motion to dismiss.
Makati allegedly for failure of the latter to comply with its contractual obligation in that, other
than a few unfinished low cost houses, there were no substantial developments therein.[1] On September 4, 1998, defendant, by Special Appearance, filed a Reply [10] contending
that the changes in the new rules are substantial and not just general semantics.
Summons, together with the complaint, were served upon the defendant, through its
Branch Manager Engr. Wendell Sabulbero at the stated address at Kolambog, Lapasan, Defendants Motion for Reconsideration was denied in the Order dated November 20,
Cagayan de Oro City [2] but the Sheriffs Return of Service [3] stated that the summons was duly 1998.[11]
served upon defendant E. B. Villarosa & Partner Co., Ltd. thru its Branch Manager Engr.
Hence, the present petition alleging that respondent court gravely abused its discretion
WENDELL SALBULBERO on May 5, 1998 at their new office Villa Gonzalo, Nazareth,
tantamount to lack or in excess of jurisdiction in denying petitioners motions to dismiss and for
Cagayan de Oro City, and evidenced by the signature on the face of the original copy of the
reconsideration, despite the fact that the trial court did not acquire jurisdiction over the person
summons.
of petitioner because the summons intended for it was improperly served. Petitioner invokes
On June 9, 1998, defendant filed a Special Appearance with Motion to Section 11 of Rule 14 of the 1997 Rules of Civil Procedure.
Dismiss[4]alleging that on May 6, 1998, summons intended for defendant was served upon
Private respondent filed its Comment to the petition citing the cases of Kanlaon
Engr. Wendell Sabulbero, an employee of defendant at its branch office at Cagayan de Oro
Construction Enterprises Co., Inc. vs. NLRC [12] wherein it was held that service upon a
City. Defendant prayed for the dismissal of the complaint on the ground of improper service of
construction project manager is valid and in Gesulgon vs. NLRC[13] which held that a
summons and for lack of jurisdiction over the person of the defendant. Defendant contends that
corporation is bound by the service of summons upon its assistant manager.
the trial court did not acquire jurisdiction over its person since the summons was improperly
served upon its employee in its branch office at Cagayan de Oro City who is not one of those The only issue for resolution is whether or not the trial court acquired jurisdiction over
persons named in Section 11, Rule 14 of the 1997 Rules of Civil Procedure upon whom service the person of petitioner upon service of summons on its Branch Manager.
of summons may be made.
When the complaint was filed by Petitioner on April 3, 1998, the 1997 Rules of Civil
Meanwhile, on June 10, 1998, plaintiff filed a Motion to Declare Defendant in Procedure was already in force.[14]
Default[5] alleging that defendant has failed to file an Answer despite its receipt allegedly on
May 5, 1998 of the summons and the complaint, as shown in the Sheriffs Return. Section 11, Rule 14 of the 1997 Rules of Civil Procedure provides that:
On June 22, 1998, plaintiff filed an Opposition to Defendants Motion to
Dismiss[6] alleging that the records show that defendant, through its branch manager, Engr. When the defendant is a corporation, partnership or association organized under the laws of the
Wendell Sabulbero actually received the summons and the complaint on May 8, 1998 as Philippines with a juridical personality, service may be made on the president, managing
evidenced by the signature appearing on the copy of the summons and not on May 5, 1998 as partner, general manager, corporate secretary, treasurer, or in-house counsel. (underscoring
stated in the Sheriffs Return nor on May 6, 1998 as stated in the motion to dismiss; that supplied).
defendant has transferred its office from Kolambog, Lapasan, Cagayan de Oro to its new office
address at Villa Gonzalo, Nazareth, Cagayan de Oro; and that the purpose of the rule is to bring This provision revised the former Section 13, Rule 14 of the Rules of Court which provided
home to the corporation notice of the filing of the action. that:
On August 5, 1998, the trial court issued an Order [7] denying defendants Motion to
Dismiss as well as plaintiffs Motion to Declare Defendant in Default. Defendant was given ten SEC. 13. Service upon private domestic corporation or partnership. If the defendant is a
(10) days within which to file a responsive pleading. The trial court stated that since the corporation organized under the laws of the Philippines or a partnership duly registered, service
summons and copy of the complaint were in fact received by the corporation through its branch may be made on the president, manager, secretary, cashier, agent, or any of its directors.
manager Wendell Sabulbero, there was substantial compliance with the rule on service of (underscoring supplied).
summons and consequently, it validly acquired jurisdiction over the person of the defendant.

On August 19, 1998, defendant, by Special Appearance, filed a Motion for Petitioner contends that the enumeration of persons to whom summons may be served is
Reconsideration[8] alleging that Section 11, Rule 14 of the new Rules did not liberalize but, on restricted, limited and exclusive following the rule on statutory construction expressio unios
the contrary, restricted the service of summons on persons enumerated therein; and that the est exclusio  alterius  and argues that if the Rules of Court Revision Committee intended to
new provision is very specific and clear in that the word manager was changed to general liberalize the rule on service of summons, it could have easily done so by clear and concise
manager, secretary to corporate secretary, and excluding therefrom agent and director. language.

On August 27, 1998, plaintiff filed an Opposition to defendants Motion for We agree with petitioner.
Reconsideration[9] alleging that defendants branch manager did bring home to the defendant-
corporation the notice of the filing of the action and by virtue of which a motion to dismiss was
 Earlier cases have uphold service of summons upon a construction project manager [15]; a It should be noted that even prior to the effectivity of the 1997 Rules of Civil Procedure,
corporations assistant manager[16]; ordinary clerk of a corporation [17]; private secretary of strict compliance with the rules has been enjoined. In the case of Delta Motor Sales
corporate executives[18]; retained counsel[19]; officials who had charge or control of the Corporation vs. Mangosing,[25] the Court held:
operations of the corporation, like the assistant general manager [20]; or the corporations Chief
Finance and Administrative Officer [21]. In these cases, these persons were considered as agent
A strict compliance with the mode of service is necessary to confer jurisdiction of the court
within the contemplation of the old rule. [22] Notably, under the new Rules, service of summons
over a corporation. The officer upon whom service is made must be one who is named in the
upon an agent of the corporation is no longer authorized.
statute; otherwise the service is insufficient. x x x.
The cases cited by private respondent are therefore not in point.
The purpose is to render it reasonably certain that the corporation will receive prompt and
In the Kanlaon case, this Court ruled that under the NLRC Rules of Procedure,
proper notice in an action against it or to insure that the summons be served on a representative
summons on the respondent shall be served personally or by registered mail on the party
so integrated with the corporation that such person will know what to do with the legal papers
himself; if the party is represented by counsel or any other authorized representative or agent,
served on him. In other words, to bring home to the corporation notice of the filing of the
summons shall be served on such person. In said case, summons was served on one Engr.
action. x x x.
Estacio who managed and supervised the construction project in Iligan City (although the
principal address of the corporation is in Quezon City) and supervised the work of the
employees. It was held that as manager, he had sufficient responsibility and discretion to The liberal construction rule cannot be invoked and utilized as a substitute for the plain legal
realize the importance of the legal papers served on him and to relay the same to the president requirements as to the manner in which summons should be served on a domestic
or other responsible officer of petitioner such that summons for petitioner was validly served corporation. x x x. (underscoring supplied).
on him as agent and authorized representative of petitioner. Also in the Gesulgon case cited by
private respondent, the summons was received by the clerk in the office of the Assistant
Service of summons upon persons other than those mentioned in Section 13 of Rule 14
Manager (at principal office address) and under Section 13 of Rule 14 (old rule), summons
(old rule) has been held as improper. [26] Even under the old rule, service upon a general
may be made upon the clerk who is regarded as agent within the contemplation of the rule.
manager of a firms branch office has been held as improper as summons should have been
The designation of persons or officers who are authorized to accept summons for a served at the firms principal office. In First Integrated Bonding & Ins. Co., Inc. vs. Dizon,[27] it
domestic corporation or partnership is now limited and more clearly specified in Section 11, was held that the service of summons on the general manager of the insurance firms Cebu
Rule 14 of the 1997 Rules of Civil Procedure. The rule now states general manager instead of branch was improper; default order could have been obviated had the summons been served at
only manager; corporate secretary instead of secretary; and treasurer instead of cashier. The the firms principal office.
phrase agent, or any of its directors is conspicuously deleted in the new rule.
And in the case of Solar Team Entertainment, Inc. vs. Hon. Helen Bautista Ricafort, et
The particular revision under Section 11 of Rule 14 was explained by retired Supreme al.[28] the Court succinctly clarified that, for the guidance of the Bench and Bar, strictest
Court Justice Florenz Regalado, thus:[23] compliance with Section 11 of Rule 13 of the 1997 Rules of Civil Procedure (on Priorities in
modes of service and filing) is mandated and the Court cannot rule otherwise, lest we allow
circumvention of the innovation by the 1997 Rules in order to obviate delay in the
x x x the then Sec. 13 of this Rule allowed service upon a defendant corporation to be made on administration of justice.
the president, manager, secretary, cashier, agent or any of its directors. The aforesaid terms
were obviously ambiguous and susceptible of broad and sometimes illogical Accordingly, we rule that the service of summons upon the branch manager of petitioner
interpretations, especially the word agent of the corporation. The Filoil case, involving the at its branch office at Cagayan de Oro, instead of upon the general manager at its principal
litigation lawyer of the corporation who precisely appeared to challenge the validity of office at Davao City is improper. Consequently, the trial court did not acquire jurisdiction over
service of summons but whose very appearance for that purpose was seized upon to validate the person of the petitioner.
the defective service, is an illustration of the need for this revised section with limited scope
and specific terminology. Thus the absurd result in the Filoil case necessitated the amendment The fact that defendant filed a belated motion to dismiss did not operate to confer
permitting service only on the in-house counsel of the corporation who is in effect an employee jurisdiction upon its person. There is no question that the defendants voluntary appearance in
of the corporation, as distinguished from an independent practitioner. (underscoring supplied) the action is equivalent to service of summons. [29]Before, the rule was that a party may
challenge the jurisdiction of the court over his person by making a special appearance through
a motion to dismiss and if in the same motion, the movant raised other grounds or invoked
Retired Justice Oscar Herrera, who is also a consultant of the Rules of Court Revision affirmative relief which necessarily involves the exercise of the jurisdiction of the court, the
Committee, stated that (T)he rule must be strictly observed. Service must be made to one party is deemed to have submitted himself to the jurisdiction of the court. [30] This doctrine has
named in (the) statute x x x.[24] been abandoned in the case of La Naval Drug Corporation vs. Court of Appeals, et al., [31] which
became the basis of the adoption of a new provision in the former Section 23, which is now
Section 20 of Rule 14 of the 1997 Rules. Section 20 now provides that the inclusion in a
motion to dismiss of other grounds aside from lack of jurisdiction over the person of the
defendant shall not be deemed a voluntary appearance. The emplacement of this rule clearly
underscores the purpose to enforce strict enforcement of the rules on summons. Accordingly,
the filing of a motion to dismiss, whether or not belatedly filed by the defendant, his authorized S. Sablas against petitioner spouses Pascual Lumanas and Guillerma S.
agent or attorney, precisely objecting to the jurisdiction of the court over the person of the
defendant can by no means be deemed a submission to the jurisdiction of the court. There Sablas in the Regional Trial Court of Baybay, Leyte, Branch 14 [1] on October
being no proper service of summons, the trial court cannot take cognizance of a case for lack of
jurisdiction over the person of the defendant. Any proceeding undertaken by the trial court will
consequently be null and void.[32] 1, 1999.[2]
 
WHEREFORE, the petition is hereby GRANTED. The assailed Orders of the public
respondent trial court are ANNULLED and SET ASIDE. The public respondent Regional Trial
Court of Makati, Branch 132 is declared without jurisdiction to take cognizance of Civil Case Petitioner spouses were served with summons and a copy of the complaint on
No. 98-824, and all its orders and issuances in connection therewith are hereby ANNULLED
and SET ASIDE. October 6, 1999. On October 21, 1999, they filed a motion for extension of
SO ORDERED.
time requesting an additional period of 15 days, or until November 5, 1999, to
FIRST DIVISION
 
GUILLERMA S. SABLAS, G.R. No. 144568 file their answer. However, they were able to file it only on November 8, 1999.
joined by her husband,
PASCUAL LUMANAS, While the trial court observed that the answer was filed out of time, it
Petitioners, Present:
 
PUNO, C.J., Chairperson, admitted the pleading because no motion to declare petitioner spouses in
SANDOVAL-GUTIERREZ,*
- v e r s u s - CORONA, default was filed.[3]
AZCUNA and  
GARCIA, JJ.
 
ESTERLITA S. SABLAS and The following day, November 9, 1999, respondents filed a motion to
RODULFO S. SABLAS,
Respondents. Promulgated: declare petitioner spouses in default. [4] It was denied by the trial court in an
July 3, 2007
 
x-------------------------------------------x order dated December 6, 1999. [5] Respondents moved for reconsideration but
 
it was also denied.[6] Thereafter, they challenged the December 6, 1999 order
DECISION
CORONA, J.:
in the Court of Appeals in a petition for certiorari [7] alleging that the admission

 
of the answer by the trial court was contrary to the rules of procedure and

This case traces its roots to a complaint for judicial partition,

constituted grave abuse of discretion amounting to lack of jurisdiction.

inventory and accounting filed by respondents Esterlita S. Sablas and Rodulfo

 In a decision dated July 17, 2000, [8] the appellate court ruled that  

the trial court committed grave abuse of discretion because, pursuant to The elements of a valid declaration of default are:

Section 3, Rule 9 of the Rules of Court, the trial court had no recourse but to 1.                the court has validly acquired jurisdiction over the person

declare petitioner spouses in default when they failed to file their answer on of the defending party either by service of summons or

or before November 5, 1999. Thus, the Court of Appeals granted the petition, voluntary appearance;[10]

vacated the December 6, 1999 order and remanded the case to the trial court 2.                the defending party failed to file the answer within the

for reception of plaintiffs evidence. time allowed therefor and

 
3.                a motion to declare the defending party in default has
Aggrieved, petitioner spouses (defendants in the trial court) now
been filed by the claiming party with notice to the
assail the July 17, 2000 decision of the Court of Appeals in this petition for
defending party.
review on certiorari.[9]  
 
An order of default can be made only upon motion of the claiming
Petitioner spouses contend that the Court of Appeals decision was not in
party.[11] It can be properly issued against the defending party who failed to
accord with the rules of procedure as it misconstrued Section 3, Rule 9 of the
file the answer within the prescribed period only if the claiming party files a
Rules of Court and was in contravention of jurisprudence.
 
motion to that effect with notice to the defending party.
 
We agree.
 
In this connection, Section 3, Rule 9 of the Rules of Court provides:
 
SEC. 3. Default: Declaration of. If the defending party
 
fails to answer within the time allowed therefor, the court
 
shall, upon motion of the claiming party with notice to the
 
defending party, and proof of such failure, declare the defending
WHERE THERE IS NO
party in default. x x x. (emphasis supplied)
MOTION, THERE
CAN BE NO DECLARATION OF
DEFAULT  
 Three requirements must be complied with before the court can reglementary period for filing the answer expires. [15] The Rules of Court

declare the defending party in default: (1) the claiming party must file a provides for discretion on the part of the trial court not only to extend the

motion asking the court to declare the defending party in default; (2) the time for filing an answer but also to allow an answer to be filed after the

defending party must be notified of the motion to declare him in default and reglementary period.[16]
 
(3) the claiming party must prove that the defending party has failed to
Thus, the appellate court erred when it ruled that the trial court had
answer within the period provided by the Rules of Court. [12]

  no recourse but to declare petitioner spouses in default when they failed to

The rule on default requires the filing of a motion and notice of such file their answer on or before November 5, 1999.
 
motion to the defending party. It is not enough that the defendant fails to
The rule is that the defendants answer should be admitted where it
answer the complaint within the reglementary period. [13] The trial court
is filed before a declaration of default and no prejudice is caused to the
cannot motu proprio declare a defendant in default[14] as the rules leave it up
plaintiff.[17] Where the answer is filed beyond the reglementary period but
to the claiming party to protect his or its interests. The trial court should not
before the defendant is declared in default and there is no showing that
under any circumstances act as counsel of the claiming party.
  defendant intends to delay the case, the answer should be admitted. [18]
   
 
 
Therefore, the trial court correctly admitted the answer of petitioner
WHERE THERE IS
NO DECLARATION
OF DEFAULT, spouses even if it was filed out of time because, at the time of its filing, they
ANSWER MAY BE
ADMITTED EVEN IF
FILED OUT OF TIME were not yet declared in default nor was a motion to declare them in default
 
  ever filed. Neither was there a showing that petitioner spouses intended to

It is within the sound discretion of the trial court to permit the delay the case.
 
defendant to file his answer and to be heard on the merits even after the  
WHERE ANSWER
HAS BEEN FILED,
an atmosphere that accurate factual findings and correct legal conclusions
THERE CAN BE NO
DECLARATION OF
DEFAULT ANYMORE can be reached by the courts.
   
 
Accordingly, the petition is hereby GRANTED. The July 17, 2000
Since the trial court already admitted the answer, it was correct in
decision of the Court of Appeals in CA-G.R. SP No. 57397
denying the subsequent motion of respondents to declare petitioner spouses
is REVERSED and SET ASIDE and the December 6, 1999 order of the
in default.
 
Regional Trial Court of Baybay, Leyte, Branch 14 is REINSTATED. The case

In Cathay Pacific Airways, Ltd. v. Hon. Romillo, Jr.,[19] the Court

is REMANDED to the trial court for further proceedings.
 
ruled that it was error to declare the defending party in default after the
SO ORDERED.
answer was filed. The Court was in fact even more emphatic in Indiana

Aerospace University v. Commission on Higher Education:[20] it was grave abuse

of discretion to declare a defending party in default despite the latters filing of

an answer.
 

The policy of the law is to have every litigants case tried on the

merits as much as possible. Hence, judgments by default are frowned upon.

[21]
 A case is best decided when all contending parties are able to ventilate

their respective claims, present their arguments and adduce evidence in

support thereof. The parties are thus given the chance to be heard fully and

the demands of due process are subserved. Moreover, it is only amidst such